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The Scranton Parking Authority's days appear to be numbered due to five separate impending defaults, unless all of those shortcomings are "cured" within a month, according to recent notices of default given to the city from a bond trustee and insurer.

SPA was plunged into default June 1 by missing a $1.2 million bond payment after council on May 31 refused to cover that debt even though the city had guaranteed it.

On Thursday, council reversed course and introduced a proposed ordinance to pay a $1.03 million balance of that SPA debt after council solicitor Boyd Hughes said bond insurer Radian Asset Assurance warned in a June 6 letter to him that it would sue the city and force a tax increase next year to cover the missed payment.

Asked if that was not the same thing Mayor Chris Doherty had said in recent weeks, that the city is on the hook to cover SPA debt, and if it doesn't, it would be sued by the bond insurer and lose in court, Mr. Hughes replied: "Look, this thing had to be positioned like it is. Nobody knew that the parking authority was as financially insolvent as it is. That all came out at the (May 31 council) caucus."

Mr. Doherty said, "He (Mr. Hughes) made a mistake when he said they should default, and he's just covering himself."

The proposed ordinance is expected to come up for both a second and third vote for adoption at council's meeting on June 14, after which the funds would be wired directly to SPA bond trustee Bank of New York Mellon. If that happens, one of the five "events of default" - the missed June 1 payment - would be corrected by making that payment before a June 16 deadline, Mr. Hughes said.

Mr. Hughes also issued on Thursday his analysis of SPA finances showing the authority estimated its revenue at $3 million this year but has actual debt service payments totaling $3.7 million, and that the authority would have a total deficit for the year of $2.5 million.

Mr. Hughes also noted the Radian letter spells out the other four defaults and ramifications if they are not cured by July 7, or a 30-day deadline after a formal notice that was issued Thursday to the city by the bond trustee.

These four defaults, according to those letters, include that the city and authority have: failed to submit to the trustee an independent audit and an annual budget of facilities prepared by a consulting engineer; failed to keep financial records separate from city records and have them certified in an annual audit by city Controller Roseann Novembrino; and failed to have an engineer perform an annual review of physical status of facilities.

If these other defaults are not cured by July 7, Radian attorney David Dubrow warned it "will direct the trustee to appoint a receiver for, and/or take possession of, the parking facilities. So long as the city timely cures the payment default and avoids future payment defaults, Radian will work with the city to maximize the revenue from the parking facilities and minimize the attendant costs."

Proceeds from sales of SPA assets would pay down bonds and make "a lot of interest (payments owed by the city) go away," Mr. Hughes said.

Councilman Pat Rogan added, "If the authority is placed in a receivership, I think it's a victory."

As it seems unlikely SPA could correct the four defaults within a month, Mr. Hughes suggested the SPA board immediately throw in the towel rather than wait for a takeover.

"They should voluntarily roll over and give the facility to Radian and have a trustee appointed," Mr. Hughes said.

On the issue of keeping financial records separate from city records, Mrs. Novembrino said, "None of the revenue from parking garages comes to City Hall. They are kept separately. That's why they (SPA) hire their own auditors."

As the city owns its parking meters, revenue from parking meters and tickets go into city coffers, she said.

Efforts to reach SPA Executive Director Robert Scopelliti on Friday, and SPA solicitor Paul Kelly, who also is city administration solicitor, on Thursday and Friday, were unsuccessful.

As for whether the SPA's end is near, Mr. Doherty said, "It could be."

Asked if he thinks SPA should immediately fold, Mr. Doherty said, "They've been damaged by what's taken place at council the last two weeks, but that's a decision for the authority to make. I'm focused on doing a (city) recovery plan because we've got to get the $16 million" in financing to cover a city budget deficit.

Mr. Doherty also said of the council's actions regarding SPA, "The parking authority has nothing to do with the financial challenges the city faces. They (council) had it in for them, but they (council) are not addressing the real issues."

He said those issues are council's refusal to fund its 2012 budget that was based on borrowing that the city now cannot get due to the default, and council's refusal to adopt a new Act 47 recovery plan or consider the mayor's recovery proposal calling for tax increases of at least 78 percent over the next three years. A new recovery plan is required both to secure immediate financing to keep the city afloat this year and instill confidence among lending institutions in the city's future ability to pay back loans, Mr. Doherty said.

"They passed this budget based on borrowing. Where's their recovery plan? I gave them mine" last month, Mr. Doherty said. If the city runs of cash, the "health, safety and welfare" of residents will be compromised, he said.

But majority council members said don't blame them for the city's crisis of looming payless paydays, lapses in health care coverage and unpaid vendors. They said SPA's woes are linked to the city's crisis because the city cannot afford to bail out SPA with $1 million due June 1, a $959,000 bond payment due in September, and an $813,000 bond payment due in December.

"We have the best interests of the majority of taxpayers in our hearts," Councilman Jack Loscombe said. "Now all of a sudden it (SPA) is coming to light because we have tightened the purse strings."

As unpaid bills mount, city Business Administrator Ryan McGowan said about 15 vendors so far have notified the city that they can no longer extend credit and want to have outstanding bills paid in full.

"I don't think they (council) understand the urgency of the problem," Mr. McGowan said. "It seems they're oblivious to how serious of a problem this is."

Meanwhile, the only bank interested in floating a bond issue that would have provided funding to keep the city in the black this year, M&T Bank, was preparing a bond prospectus but backed out June 1 after the council refused on May 31 to cover the SPA debt, Mr. McGowan said. However, Mr. Hughes contended M&T actually could have backed out because of the SPA's need for the city to cover its debt payment was a negative "material change" in the city's financial condition from only a few weeks ago when M&T was on board.

"Not accurate," Mr. McGowan said. "That (May 31 vote) was the straw that broke the camel's back. They (M&T) said this is not a deal that we can sell to someone. The default makes it impossible to market the city."

M&T Bank spokesman Philip Hosmer said in a statement that the bank does not comment on details of customer relationships due to privacy considerations, and the bank would not say why it walked away or speculate on whether it would reconsider if the default is corrected.

Contact the writer: jlockwood@timesshamrock.com

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